Liberalised Remittance Scheme (LRS)

What is the Liberalised Remittance Scheme (LRS)?

The Liberalised Remittance Scheme (LRS) lets resident Indian parents send money abroad easily. RBI started this scheme in 2004 under FEMA regulations. Parents use LRS to pay for their child's foreign university fees and living costs. You don't need RBI approval for amounts up to USD 250,000 per year. Banks track your remittances through your PAN card across all banks.

• Why LRS is Important to Parents: Unlike corporate salary remittances or NRI transfers, LRS gives you the flexibility to fund Harvard, Oxford, or any recognised university directly. Banks track usage via your PAN across all institutions.

Key Features of Liberalised Remittance Scheme (LRS)

LRS offers several advantages for parents funding overseas education:

• Each parent gets USD 250,000 per financial year
• You face no limits on the number of transactions
• Education loans qualify for 0% TCS always
• Banks use the purpose code S0305 for education remittances
• You complete the entire process digitally in 2 days
• Both parents and grandparents can remit separately
• Parents can track their remaining limit anytime through the bank's CIMS portal link

Transaction Limits under the LRS Scheme

The following transaction limits must be kept in mind while remitting money overseas:

Tax on LRS Remittances

As per Section 206C(1G) of the Income Tax Act, the following Tax Collected at Source (TCS) is applicable on the LRS remittances:

*NOTE: 

• Tax Collected at Source (TCS) applies based on the total remittance in a year.
• TCS up to ₹10 lakh is exempt as per the changes declared in the Budget 2025.
• Any TCS collected can be claimed as a refund while filing your income tax return.
• As education loans give unlimited 0% TCS. Many parents take ₹50 lakh loans just for tax savings.
• TCS Process: Bank collects at source, credits to your PAN (Form 26AS). You need to file your ITR next year to receive a full refund if your tax liability is lower. 

Who is Eligible under the Liberalised Remittance Scheme (LRS)?

*Every family member gets an individual USD 250,000 limit. No income proof needed.

Documents Required for Child Education Remittances under the LRS Scheme

You need to prepare the following documents to remit money for your child’s education abroad:

• University Admission Letter (official, stamped)
• Fee Invoice/Receipt provided by the university
• Child's Passport and Visa copies
• Parent's PAN and Aadhaar
• Form A2 with S0305 code selected
• Education Loan Sanction (for 0% TCS)

*Most banks accept scanned copies via app upload.

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Steps for LRS Remittances as per RBI Rules

Follow these simple steps to remit under LRS for your child's education:

• Visit an RBI-Authorised Category-I Dealer Bank (like SBI, HDFC, HSBC).
• Fill Form A2, select “S0305 - Studies Abroad” code with bank details.
• Upload the above-mentioned KYC documents.
• Bank verifies the transaction and ensures cumulative remittances remain within USD 250,000.
• Funds are sent in the chosen foreign currency to the university/ child account.

Pro-tip: Issue a multi-currency forex card alongside a wire transfer. Your child can withdraw in USD/GBP/EUR from ATMs at 2-3% better rates.

Transactions Permitted under the LRS Scheme

LRS covers both current account and capital account transactions.

1. Current Account Purposes

   • Private visits (excluding Nepal & Bhutan)
   • Travel and tourism
   • Medical treatment abroad
   • Studies abroad (academic expenses, living and accommodation costs)
   • Overseas employment
   • Maintenance of close relatives overseas
   • Overseas business trips
   • Gifts or donations to NRI/PIO relatives

2. Capital Account Purposes

   • Investments abroad
   • Buying foreign stocks, bonds, and mutual funds
   • Real estate purchases abroad
   • Opening foreign currency bank accounts
   • Financing start-ups or business ventures overseas
   • Extending loans to close relatives abroad as per RBI guidelines

3. Additional Approved Educational Expenses for Current Account Purposes

   • GRE, GMAT, TOEFL, and IELTS examination fees
   • Student visa processing charges and courier services
   • One-way airline tickets to the study destination
   • Mandatory university health insurance premiums
   • Required course textbooks, lab supplies, and software licenses

Transactions Prohibited for Education under the LRS Scheme

RBI establishes clear restrictions to prevent education funding misuse:

• Unrecognised foreign institutions or questionable diploma mills
• Short-term certificate programs lasting under 6 months
• Language training or hobby courses on tourist visas
• Cryptocurrency trading academies and similar programs
• Luxury living expenses exceeding established university cost norms

Other Prohibited Transactions:

Some other remittance transactions are prohibited by the Reserve Bank of India (RBI) under the LRS scheme: 

• Buying lottery tickets or sweepstakes abroad
• Remitting for margin trading or forex trading overseas
• Buying Foreign Currency Convertible Bonds (FCCBs) in secondary markets
• Capital remittances to certain high-risk FATF-identified territories
• Funds are directly or indirectly given to individuals/entities flagged for terrorism risk

What are the Benefits of LRS for Overseas Education of Your Child?

Parents prefer the Liberalised Remittance Scheme over other education funding routes due to these reasons:

• There is 0% TCS via education loans, which is 20% for other overseas investments.
• Higher limit of USD 250K per parent in a financial year against the fixed DD limits.
• The amount gets paid directly to the university, and there is no hassle of intermediaries.
• The effective limit gets doubled for education remittance through family pooling.
• Parents can digitally track the status of remittances via bank apps.
• Full TCS can be refunded after filing an ITR in the next Financial Year (FY).

Liberalised Remittance Scheme (LRS) vs Other Remittance Routes

Rules to Remit More Than $2,50,000

You can apply for RBI approval using Form REX for excess remittance in case you need to remit a higher amount in a financial year. RBI generally allows excess remittance for bona fide education expenses when proper documents are submitted.

Documents Required

• University fee invoice
• Admission letter
• Proof of Year-1 remittances under LRS

Key Compliance Tips for LRS Scheme

You should keep the following tips in mind when remitting money under the LRS scheme:

• PAN must be linked: Banks track all LRS transfers using your PAN across banks through RBI's CIMS system.
• Choose the right purpose: Select the correct purpose code and keep invoices or admission letters ready.
• Track your limit: Monitor your USD 250,000 yearly limit, especially when using multiple banks.
• Pay institutions directly: Send education fees straight to the university to avoid rejection.
• Save tax proofs: Keep remittance receipts and TCS certificates for ITR filing.

Key Updates on LRS Scheme in 2025-26

• Budget 2025 update: The TCS exemption limit under LRS is increased from ₹7 lakh to ₹10 lakh, reducing the upfront tax burden.
• RBI update (Dec 2025): Real-time CIMS monitoring now prevents accidental over-remittance across banks.
• Education loan benefit: Unlimited remittance with 0% TCS on education loans has led to a 30% rise in parental usage.
• LRS limit stability: The USD 250,000 annual cap continues unchanged, ensuring stability despite the ₹85/USD exchange rate.

Conclusion

The Liberalised Remittance Scheme (LRS) has completely transformed access to overseas education for Indian families. Each parent gets an immediate annual allocation of USD 250,000 under LRS, making large international education expenses easier to manage. By using education loans, parents can secure 0% TCS benefits, significantly reducing upfront tax outflow. Legal family pooling of limits allows households to double or even multiply funding capacity for high-cost global universities.